The ‘complex’ tax affairs of wealthy individual makes it difficult for HMRC to identify the tax they owe; but the agency says it has doubled the tax revenues it has collected over the past 12 months, from £2.2 billion in 2019-20 to £5.2 billion in 2023-24.
HMRC defines ‘wealthy individuals’ as those earning more than £200,000 a year, or with assets over £2m, in any of the last three years. The wealthy tax gap, which is the difference between the amount of tax that should be paid to HMRC by wealthy individuals and what was actually paid, is estimated at £1.9 billion in 2022-23.
A new report by the National Audit Office (NAO) applauds the work of HMRC in closing the gap but says HMRC should ‘develop a clear strategic vision and plan for its work tackling wealthy non-compliance’ and makes several recommendations on future activity to tackle tax affairs complicated by a mix of income streams, assets and business interests.
‘Wealthy individuals’ paid £119bn in personal taxes in 2023-24, an average of £140,000 tax paid per wealthy individual, accounting for 25% of the UK’s personal tax receipts. In addition, overseas wealthy individuals grew from 700,000 in 2019-20 to 850,000 in 2023-24. Around 29,000 wealthy individuals had incomes of at least £1m in 2023-24 and were liable for around £34bn of Income Tax
The report examines the extent to which HMRC is well placed to support wealthy individuals to pay the right tax. Up until 2017 HMRC had a dedicated unit to focus on those taxpayers with assets above £10 million but now all 850,000 wealthy individuals are dealt with by the wealthy compliance team, comprising some 910 full-time equivalent staff.
In its recommendations the NAO say there needs to be a clear strategic vision and plan to continue to tackle non-compliance. HMRC’s compliance activities, which are led by its ‘wealthy team’, include interventions to promote compliance (eg, legislative change, education and digital prompts) and to investigate non-compliance. The agency issued 456 penalties to wealthy individuals totalling £5.8m, down from 2,153 penalties totalling £16.2m, in 2018-19. The number of wealthy individuals subject to criminal prosecutions by HMRC reduced significantly from 30 in 2019-20 to five in 2021-22, but this has since increased to 25 in 2023-24.
It also recommends the definition of wealthy individual should remain under review and it should improve its understanding of how tax professionals influence compliance, in a positive and negative way, and ensure staff are cognisant of these methods, and/or ‘recruit people with sufficient experience of wealthy tax affairs and expertise in international arrangements.’
Collecting the right tax from wealthy individuals is available to review on the NAO website.
